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The RE/MAX International Chairman and Co-Founder's thoughts on recruiting,
retention, management and creating brokerage profitability in any market
conditions
January 28, 2009
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Plan for the Worst,
But Aim for Prosperity
Like you, we are constantly reading predictions about what's going
to happen in real estate this year and beyond. Some of the
forecasts seem too dire and others overly optimistic.
Many of the top projections, though, support what we've been
telling RE/MAX Broker/Owners and Managers for quite some time: that
it's vital to adapt to the market conditions of today, because the
sales levels of 2005 probably aren't coming back soon. Things might
get a little better this year, or a bit worse, but essentially, the
market you have now is the market you'll have for a while.
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Outlooks are similar
In the December edition of REAL Trends, Steve Murray sets the
worst-case scenario for 2009 as a 10% reduction from 2008, and the best case as
a sales figure roughly equal to last year's. Another trusted source,
Kiplinger's, sees a 2009 slightly better than 2008.
We have a similar outlook. We believe the various stimulus
packages, mortgage renegotiation efforts, policy changes and other actions could
increase existing home sales to a point somewhere between 5 million and 5.5 million
units, up to 10% higher than in 2008. We see much of that activity coming in the
second half of the year with the return of more and more buyers, including a fair
number of investors who've been waiting for the bottom.
The best advice: Plan for the worst and take advantage if things
end up better than expected.
Growth will come slowly
Longer term, we endorse another prediction Murray makes in
December's REAL Trends: "While we firmly believe that the business will begin to
regain its footing (in 2009), the number of transactions will not recover to the
average level of the 2003-2005 period for at least 10 years, and it could easily be
15 years to get back to 7+ million total home sales."
The red-hot market, according to Murray, could be gone for several years. Think
about that and ask yourself this: Is my business still geared for the sales pace of
2003-06 or have I adjusted to the slower market I have now?
Foreclosures are at record levels
It's a vital question, because the nature of the market has changed
significantly. Foreclosures, not a factor in 2003-05, now have a huge impact on
price, commissions, marketability and consumer confidence. And though much will be
done to curb the problem, it will take time to work these troubled properties
through the system, due in part to sheer volume. RealtyTrac reported more than 3
million foreclosure filings on 2.3 million properties in 2008, an increase of 81%
from 2007 and 225% from 2006; banks repossessed over 850,000 properties last year,
more than double the 2007 total.
Homes in some stage of foreclosure will account for a large portion of sales this
year. Help your agents recognize that and arm them with the skills and knowledge to
serve this sector of the industry.
Begin with expenses
With home prices declining and overall revenues trending downward,
cost reduction ties directly to brokerage profitability.
Our friend Howard Lein, Broker/Owner of RE/MAX Excalibur Realty in Scottsdale,
Ariz., likes to say he "attacks expenses with a knife and carves them with a
scalpel." He used the knife, he says, to close one of his four offices (with no net
loss of agents) last year; he used the scalpel to scale back on smaller budget
items - phone calls, E&O deductibles, company cars and such - that ultimately
added up over time. Those expenses may make perfect sense when houses are flying
off the shelves, as they were in Scottsdale for a long time, but in today's market
they simply don't hold up.
You have hard choices to make
In another example of Howard's forward thinking, he alerted his
Associates that instead of the annual Christmas party, with a budget of $20,000, he
would hold a December Sales Rally to introduce several new lead-generation tools,
including a unique system called "VoicePad.” We'll discuss VoicePad later - it's a
remarkable product - but the point here is that Howard understood that his agents
are better served by more leads and more business than by an expensive holiday
party. In fact, he says, the Sales Rally, with its focus on agent success, was just
as valuable in his retention efforts as the holiday party had been - and it did a
better job of preparing his team for the year ahead. It's difficult for leaders to
scale back on costs or shift priorities, but ultimately these are good business
decisions for the times we're in.
Every expense must somehow help recruit, retain or generate listings and sales. If
something doesn't fit those objectives, don't buy it. The end result is a tighter,
trimmer operation - one better tailored to the market of today and tomorrow.
Work to upgrade your systems
The other keys to profitability are recruiting, improving the
quality and performance of your agents, and finding new ways to increase revenue.
In future newsletters, we'll cover a wide variety of strategies in these areas,
examining topics such as mergers and acquisitions, distressed properties,
motivation, business planning and much more. We'll bring you the best tactics and
ideas from some of the most successful Broker/Owners in the RE/MAX network.
Existing sales are near 2000 levels
It's interesting to note that during our recent 22-city speaking
tour, we asked RE/MAX Broker/Owners and Managers whether they were in the business
and profitable in 2000, when sales of existing homes (see the chart above, which
includes projections) were at the level they are now - about 5 million - and FSBOs
were far more prevalent. The hands went up.
Much has changed since then - NAR membership, for instance, grew from under 800,000
in 2000 to more than 1.3 million last year - but the point is that there were
profits to be made then, and there are profits to be made now. As a RE/MAX
Broker/Owner, you offer many competitive advantages that speak directly to the
challenges of today - including foreclosure training on RE/MAX University,
unmatched brand power, a high-traffic Web site and top lead-generation tools. You
also have each other, and no organization shares its ideas as much or as well as we
do.
None of us can change the economy, but we can each change our response to it and
our actions within it. We share Steve Murray's vision of a real estate market whose
growth will likely be slow over the next few years. Yet we also realize that
success is possible within those conditions. With the right approach, the right
adjustments, the right agents, the right commitment to recruiting and the right
tools and advantages behind them, RE/MAX Broker/Owners can find prosperity, even in
these times.
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